MR. TIM RUSSERT: Our issues this Sunday: The president digs in on Iraq.

(Videotape):

PRES. GEORGE W. BUSH: And we will do what it takes to help them succeed.

(End videotape)

MR. RUSSERT: His top political adviser, Karl Rove, goes after the Democrats.

(Videotape, June 12, 2006):

MR. KARL ROVE: They fall back on that party’s old pattern of cutting and running.

(End videotape)

MR. RUSSERT: This morning: the most outspoken Democratic critic of the president’s handling of the war responds. An exclusive interview with Congressman John Murtha, Democrat of Pennsylvania.

Then, how can the chief executives of the big oil companies explain the skyrocketing prices at the pump? This morning, they try. With us: John Hofmeister, president, Shell Oil Company; James Mulva, chairman and CEO, ConocoPhillips Corporation; and David O’Reilly, chairman and CEO, Chevron Corporation. Together only on MEET THE PRESS.

But first, Iraq. Joining us now is Democratic Congressman John Murtha.

Welcome back to MEET THE PRESS.

REP. JOHN MURTHA (D-PA): Nice to be back, Tim.

MR. RUSSERT: The president says, “stay the course,” that within the next six months, Iraq will be secure under the direction of the new prime minister, and to do anything less now would be irresponsible.

REP. MURTHA: Well, “stay the course” is “stay and pay.” This is the thing that has worried me right along. We’re spending $8 billion dollars a month, $300 million dollars a day. And to give you some perspective of what that means, Gates said, “I’m going to quit the corporation, or I’m going to—less time with the corporation.” Well, you weigh $30 billion dollars. That’s four months of the cost of this war. This port security, if you want to spend more money, it’d would take 47 years the way we’re spending it. Education, the No Child Left Behind, a couple months of the war would pay for that. Whose going to, whose going to pay for this down the road? Our children and grandchildren are paying for this war. And then you have the, the, the emotional strain, the, the, the people who are being hurt.

On the floor the other day, you may have heard this, one fellow says, “We’re fighting this war.” We’re not fighting this war. One percent of the American people, these young men and women are fighting this war, with heavy packs, with 70 pounds of equipment, with helmets on in 130 degrees. That’s who’s fighting this war. And they say “stay the course.” There’s no plan. You open up this plan for victory, there’s no plan there. It’s just “stay the course.” That doesn’t solve any problem.

It’s worse today than it was six months ago when I spoke out initially. When I spoke out, the garbage wasn’t being collected, oil production below pre-war level—all those things indicated to me we weren’t winning this, and it’s the same today, if not worse. Anbar Province. There’s not one project been done in Anbar Province. Two million people live there. They have no water at all, no oil production, they have no electricity at all in that province where is the heartland of the defense. The first six months we went in there, no—there—not a shot was fired, so it shows you how it’s changed.

It’s getting worse. That’s why I feel so strongly. All of us know how important it is internationally to win this war. We know how important. We import 20 million barrels of oil a day—we use 20 million barrels of oil. We know how important, international community. But we’re doing it all ourself, and there’s no plan that makes sense. We need to have more international cooperation. We need to redeploy our troops, the periphery. What happened with Zarqawi could have been done from the out—it was done from the outside. Our planes went in from the outside. So there’s no reason in the world that they can’t redeploy the troops. They’ve become the targets, they’re caught in the civil war, and I feel very strongly about it.

MR. RUSSERT: You sure do, Congressman, but so does the White House. Karl Rove, the principal political adviser to the president, went to New Hampshire on Monday, and he talked about Democrats who voted for the war and who have now changed their opinion. Here’s what he had to say, and I’ll give you a chance to respond.

(Videotape, June 12, 2006):

MR. ROVE: Like too many Democrats, it strikes me they are ready to give the green light to go to war, but when it gets tough and when it gets difficult, they fall back on that party’s old pattern of cutting and running. They may be with you at the first shots, but they are not going to be there for the last tough battles. They are wrong, and profoundly wrong, in their approach.

REP. MURTHA: He’s, he’s in New Hampshire. He’s making a political speech. He’s sitting in his air conditioned office with his big, fat backside, saying, “Stay the course.” That’s not a plan. I mean, this guy—I don’t know what his military experience is, but that’s a political statement. This is a policy difference between me and the White House. I disagree completely with what he’s saying.

Now, let’s, let’s—give me, give you an example. When we went to Beirut, I, I said to President Reagan, “Get out.” Now, the other day we were doing a debate, and they said, “Well, Beirut was a different situation. We cut and run.” We didn’t cut and run. President Reagan made the decision to change direction because he knew he couldn’t win it. Even in Somalia, President Clinton made the decision, “We have to, we have to change direction. Even with tax cuts. When we had a tax cut under Reagan, we then had a tax increase because he had to change direction. We need to change direction. We can’t win a war like this.

This guy’s sitting back there criticizing—political criticism, getting paid by the public taxpayer, and he’s saying to us, “We’re, we’re winning this war, and they’re running.” We got to change direction, that’s what we have to do. You can’t, you can’t sit there in the air conditioned office and tell these troops they’re carrying 70 pounds on their back inside these armored vessels and hit with IEDs every day, seeing their friends blown up, their buddies blown up, and he says “stay the course.” Yeah, it’s easy to say that from Washington, D.C.

MR. RUSSERT: Is it appropriate for the president’s principal political adviser to accuse the Democrats of cutting and running?

REP. MURTHA: I think it’s, it’s, it’s a, a name—they just use that. I say “stay and pay.” And what I mean by stay and pay, and I’m talking about the hardship on the families, the hardship on the troops. And there’s no plan, that’s the thing. It’s easy to say that. That’s, that’s an easy—the public is way ahead of this. The public is two-to-one against what we’re doing, and they want a change in direction. That’s the thing I see the most.

MR. RUSSERT: But in 2004, you had a view that was much different than you had now, and this is what you wrote in your book: “A war initiated on faulty intelligence must not be followed by a premature withdrawal of our troops based on a political timetable. An untimely exit could rapidly devolve into a civil war, which would leave America’s foreign policy in disarray as countries question not only America’s judgment but also its perseverance.” Aren’t you now advocating that?

REP. MURTHA: Yeah, you’re absolutely right. That’s what I said then. And I think in the early stages, you have to judge that. But there comes a time when you got to change direction. There comes a time when you have to say to yourself, “OK, we’ve done everything we could do, we can’t win this militarily.” That’s why—and I talk to the military leaders, I talk to the troops, I go to the hospitals all the time.

So there’s two reasons that I felt it was absolutely essential we change direction. One is the troops themselves and what they’re going through and the fact that 42 percent of them don’t even know what the mission is. And, and the second thing is the long-term stability of this country, our inability to prevent another war because we don’t have the resources. A $50 billion dollar backlog of equipment shortages and so forth. You just have—at some point you just have to change direction.

And if you’re not winning, if you’re losing, and that’s what’s happening. We’re, we’re—when I say losing, we’re, we’re losing ground over there and, and we have inadequate forces. We went in, the first place, we didn’t have any reason to go in. We didn’t have a threat to our national security. That’s been proven. Second, we went—inadequate forces to get it under control in a transition to peace. Third, the third thing was, no exit strategy.

I, I’m convinced, though, Tim, I believe this, I believe the president’s sounding tough, but the president’s also saying it’s now up to the Iraqis. You watch what I’m saying. He’s saying—and the vice-president and the president of Iraq, 80 percent of the Iraqis want us out of there. And the vice-president, president of Iraq said, “We want a time table to get out.” That’s what we need and the president knows that and that’s what he’s going to come up with.

MR. RUSSERT: You expect a significant American troop withdrawal by the midterm elections?

REP. MURTHA: I expect a significant troop withdrawal. They’re trying to find a way to do this. The trouble is it keeps getting worse and they don’t want to admit they made a mistake. You just have—at some point you got to reassess it like Reagan did in, in Beirut, like, like Clinton did in Somalia, you just have to say, “OK, it’s time to change direction.”

MR. RUSSERT: Karl Rove invoked your name in New Hampshire. Let me show you that comment.

(Videotape, June 12, 2006):

MR. ROVE: I want you to think about the consequences of their proposed course of action. If Murtha had his way, American troops would’ve been gone by the end of April and we wouldn’t have gotten Zarqawi.

(End videotape)

REP. MURTHA: They—Let me tell you, they built Zarqawi up. They have 1,000 foreign fighters. This is a civil war, and we did it from the outside, anyway. The good thing about what—when we got Zarqawi, it was Iraqi intelligence that came to the Iraqis that came to the United States. And then from outside the country, from the periphery of the country they went and bombed where Zarqawi was. So there, there was progress from that standpoint. But to say that it wouldn’t have happened is absolutely a political statement.

MR. RUSSERT: You did say, however, in ‘05, “Our military has done everything that has been asked of them. The U.S. cannot accomplish anything further in Iraq militarily.” The fact is the capture of—or the killing of Zarqawi was a military accomplishment. So the military could do more.

REP. MURTHA: Well, it was a military accomplishment from outside the country. We, we bombed, we bombed it. The, the information came from the Iraqis to the Iraqis to the U.S., and then we bombed where he was. And it—so it came from the outside.

I’ll tell you, here, here’s the problem we have in, in this kind of a war. First, first of all you’ve got our troops in the green zone. President says, “OK, I’m going in. And it was nice to see a democratic country—a democratic organization in operation.” It’s in the green zone. It’s a fortress. They’re not out in, in the public. They’re—they cannot go outside the—when I first went to Iraq, you could drive any place. As a matter of fact, when I found the 44,000 body armor shortages I was out in the division in the field. When I went to Anbar—but now you can’t go outside the green zone. So, so—the, the government’s inside the green zone. So they’re, they’re where Saddam Hussein was.

Then, then let’s take the prison situation. We, we pass in the House and the Senate a veto-proof legislation that they shouldn’t veto and then the president says, “Well, we’re going to continue the same policy.” Now what does that say? We’re fighting a war of ideals and ideas. It’s no longer a military war. We have won the military war against their, their enemy. We toppled Saddam Hussein. The military’s done everything that they can do. And so it’s time for us to redeploy. And Iraqi—only Iraqis can settle this.

Let’s listen and give you again a chance to respond to the White House.

(Videotape, Monday):

MR. ROVE: Congressman Murtha said, “Let’s redeploy them immediately to another country in the Middle East. Let’s get out of Iraq and go to another country.” My question is, what country would take us? What country would say after the United States cut and run from Iraq, what country in the Middle East would say, “Yeah. Paint a big target on our back and then you’ll cut and run on us.” What country would say that? What country would accept our troops?

(End videotape)

MR. RUSSERT: What’s your response?

REP. MURTHA: There’s many countries understand the importance of stability in the Middle East. This is an international problem. We, we use 20 million barrels of oil a day. China’s the second largest user. All these countries understand you need stability for the energy supply that’s available in the Middle East. So there’s many, many countries.

MR. RUSSERT: Who?

REP. MURTHA: Kuwait’s one that will take us. Qatar, we already have bases in Qatar. So Bahrain. All those countries are willing to take the United States. Now, Saudi Arabia won’t because they wanted us out of there in the first place. So—and we don’t have to be right there. We can go to Okinawa. We, we don’t have—we can redeploy there almost instantly. So that’s not—that’s, that’s a fallacy. That, that’s just a statement to rial up people to support a failed policy wrapped in illusion.

MR. RUSSERT: But it’d be tough to have a timely response from Okinawa.

REP. MURTHA: Well, it—you know, they—when I say Okinawa, I, I’m saying troops in Okinawa. When I say a timely response, you know, our fighters can fly from Okinawa very quickly. And—and—when they don’t know we’re coming. There’s no question about it. And, and where those airplanes won’t—came from I can’t tell you, but, but I’ll tell you one thing, it doesn’t take very long for them to get in with cruise missiles or with, with fighter aircraft or, or attack aircraft, it doesn’t take any time at all. So we, we have done—this one particular operation, to say that that couldn’t have done, done—it was done from the outside, for heaven’s sakes.

MR. RUSSERT: Big debate on the House floor this week, and then Congress, the House, voted for a resolution supporting the president. Forty-two Democrats crossed over and voted for the president. Joe Klein in today’s Time magazine writes this, “How is it possible - with 2,500 U.S. soldiers dead, no discernible progress on the ground and a solid majority of the public now agreeing that the war in Iraq was a mistake - for the Democrats to seem so bollixed about the war and for the president to seem so confident? A good part of it is flawed strategy. Democrats keep hoping that the elections can be framed as a referendum on the Bush policy, and Republicans keep reminding the public that elections are a choice, not a referendum.” Do you agree with that?

REP. MURTHA: No, I, I agree with that. I think we have to have a policy. That’s why I’ve been so adamant about this particular issue. And you see 150 people voted against this resolution. A year ago, it would have been a lot less that that. Six months ago, it would have been a lot less than that. So, so Democrats are starting to come around, and some Republicans. Twelve Republicans came to me after, after this vote and said to me, “Well, you know, I couldn’t vote for it, but I understand what you’re saying.” One very conservative Republican said, “We can’t afford to carry on this war. It’s killing us financially.” And, of course, I say not only financially but the troops are bearing this heavy burden.

MR. RUSSERT: But if the Republicans are capable of showing a contrast between the parties—in 2002, successfully; in 2004, successfully; the Republicans perceived, they hope, as the stronger party on national security—will that work in 2006? The Democrats will be portrayed as cut-and-run and the Republicans as the party of strength?

REP. MURTHA: Well, I think the public would have to be portrayed as cut-and-run if you talk about the Democrats being portrayed—every place I go, people understand what I’m saying. The public has been away ahead. For instance, when I came to Congress in ‘74, I remember distinctly the public—they said we, we’d only win a few seats, we had a two-to-one majority at that time. We won all five of the special elections that year, we lost—we—when Vice President Ford’s seat—only had it for two years, but we won that seat. Then in, in ‘94, when the public turned against the Congress, we thought we’d lose 18, we lost 52 seats.

So, you know, it, it’s easy to them to try to spin the fact that it’s not going to happen. And I think we do have to have legitimate proposals. I think we have to talk about a lot of things besides the war itself, but the war has such a ramification, such—the debt itself is $8.4 trillion dollars. How we going to pay for this? Obviously, we’re going to have to adjust taxes from the higher level, there’s no question about it if you’re going to—unless you want your children and grandchildren paying for this. So we—a lot of problems we have to face. It’s an individual thing. Some areas it’s not as popular as others, but in the long run, a lot of people have changed their mind. It’s changed dramatically from the way it was today, and I think most—well, two thirds of the Democrats agree with my position now.

MR. RUSSERT: Do you think there’s a possibility—or do you ever have pause and say to yourself, “You know, maybe this might work a few years from now and we may have a democratic state in Iraq”?

REP. MURTHA: I, I would hope that, but I don’t see it happening. I measure it this way—when, when they say to me that progress has been made, I say give me the facts. Incidents have increased, doubled in, in the last six months. Oil production below pre-war level, electricity below pre-war level. Every single measurement that I use is either below pre-war level or is going backward. IEDs have gone up substantially. The number of insurgents have increased.

Now, got to keep in mind, we’ve got 130,000 troops in Iraq and, and yet these things have happened. Now, why have they happened with our troops there? Because we’ve become the enemy. We have to change our policy, we have to change direction. We all want the same thing, we want something to happen, we want a democratic government, but that’s not happening the way we’re doing, so we got to do it differently. Internationally, diplomacy is the key and we got to restore confidence. Our credibility is in the tank, as you well know. The whole world looks at us like, like we’re, we’re the bad guys. And some of the thing—it’s ideas and ideals, and unfortunately, we’ve lowered our standards with some of the statements this administration makes below the standards the United States usually has.

MR. RUSSERT: Are you concerned if we got out you could leave behind complete chaos, which could become a real haven for international terrorists, another Afghanistan pre-September 11?

REP. MURTHA: I think—I think it’s the opposite. I—I think right now, we—we’re inciting, we’re recruiting, we’re recruiting terrorists in Iraq. We’re allowing them to train in Iraq. We’re allowing—when we do things like—we, we go into Fallujah, which, which they considered a military victory. We put 300,000 people outside their home.

Now, why? Why do we do it? Because we use overwhelming force in, in order to comply with the military structures that we have. I agree with that. We have to do that to protect Americans. But that makes enemies. And when you use military force to make enemies, you inadvertently pay people. And to give you an example, we—last year, we spent $5 million dollars; the year before last, $5 million dollars in consultation—or consolation payments. Last year it was $20 million dollars. That means we killed that many more people. Every time you kill an Iraqi, even though it’s inadvertent, you make an enemy, and the way the military has to operate.

Bush said, when he first ran for office, “We’re not going to do nation-building.” That’s what we’re in to, and we’re not successful at it. The military is not successful at nation-buildings, particularly in an insurgence. Now, let me make it clear: 1,000 insurgents, that’s all. There were only 200 there three years ago. Two hundred. And now, they think, in the insurgency itself, it could—foreign fighters, foreign fighters, 1,000, maybe 15,000 insurgents. We’re there, and there’s 15,000 insurgents. Went from 200 to 15,000. That’s the problem. We’re not, we’re not, we’re not making progress. That’s the problem.

MR. RUSSERT: John Kerry, the Democratic nominee in 2004, who voted for the war, gave a speech this week and he said this: “Let me say it plainly: It’s not enough to argue with the logistics or to argue about the details or the manner of the conflict’s execution or the failures of competence, as great as they are.

“It is essential to acknowledge that the war itself was a mistake ... to say the simple words that contain more truth than pride.

“We were misled. We were given evidence that was not true. It was wrong, and I was wrong to vote for that Iraqi war resolution.”

Do you believe any Democrat who seeks the nomination for president in 2008, who voted for the war in Iraq, should publicly say not just the war’s been mismanaged, “I was wrong to vote for the war.”

REP. MURTHA: Yeah, it’s obvious. It was a mistake. And I’ve said this from the very start. I mean, you had no weapons of mass destruction, you had no connection with al-Qaeda, there was no danger to our national security. We don’t put young people in harm’s way unless we have a threat to our national security.

I’m in a hospital, young woman’s standing there beside her wound—badly wounded husband, and she says he’s been in Iraq twice, and he enlisted to fight for America, not for Iraq. We want stability; it’s an international problem. But, but we, we, we can’t achieve it in the direction they’re going. These, these comments they make about cutting and running, so forth and so on, that doesn’t, that doesn’t solve the problem. What is their plan? They have no plan. And we’re, we’re recruiting terrorists against us, Tim. That’s the problem.

MR. RUSSERT: They say their plan is, when the Iraqis stand up, we stand down. That, if given time, the Iraqis will produce enough of a military and security force to secure their country, put down the insurrection, and allow the Americans to go home.

REP. MURTHA: I, I believe when we redeploy, that will happen. I believe there’s only 1,000 foreign fighters, 1,000 in al-Qaeda. Might be more foreign fighters, but 1,000 al-Qaeda in Iraq. I believe they will get rid of them. Just like Zarqawi. It didn’t come from us; it came from the Iraqis. The Iraqis know who these people are, and they’ll get rid of them. I think there’ll be less chaos than there is when, when we’re there. Because we’re the ones that are forcing—they’re recruiting people. They’re—when a person’s willing to kill themselves, why? Because we’re there. Eighty percent of the people want us out. The president, vice president of Iraq said, “Give us a timetable to get out.” They know how important it is.

Internationally, who have we held responsible for this thing and accountable? Have we held secretary of defense accountable? Have we held anybody in the White House accountable? They promote people who’re responsible for us going to war, rather than hold them accountable. That’s the first stage. And the second stage: Admit you made a mistake. President’s admitted he made a few mistakes. It’s more than that. We went to war on the wrong assumptions. We made a terrible mistake, and we need to talk to the international community, get their help, just like in the first Gulf War, where they paid $60 billion dollars, they had 160,000 troops involved in that, and we went to the border. Bush One said, “I’m not going to Iraq because I don’t want to occupy it, I don’t, I don’t want to rehabilitate it. It would cost too much money and too many lives.” And he was right. And a lot of right-wingers said, “Oh, no, we should’ve gone in.” Well, they found out what it’s like to go in now.

MR. RUSSERT: You stunned a lot of your colleagues with a letter on June 9. It said this: “If we prevail, as I hope and know we will and return to the majority this next Congress, I’ve decided to run for the open seat of the majority leader. I would appreciate your consideration and vote and look forward to speaking to you personally about my decision.”

A few days later, Nancy Pelosi, the Democratic leader, put out this statement. “In the spirit of unity to achieve our goal of winning a Democratic majority in November, Congressman John Murtha has informed me that he will suspend his campaign for Majority Leader until after we win a Democratic majority of the House.” Was your announcement of candidacy too premature?

REP. MURTHA: Well, it wasn’t premature because in this business you have to make sure you get your foot in the door. You have to make sure you make a statement, because if you don’t, other people may be running and other people will, will be committed. For instance, I—even as, as early as I was, two good friends of mine said, “Gee, I already committed myself.” So overwhelmingly, people hadn’t committed themselves. But if I’d have waited too long, they would have been committed. And, and I realized, when I talked to the members, every—on—when—the news media, that’s all they asked them. They couldn’t concentrate on anything else. So I, I think it was only—it wasn’t premature, it was essential that I make notice that I was going to run. And there’s a lot of problems, not only involved in the war but in medicine, in, in immigration, all these kind of things we got to talk about and focus the country, and I’m willing to do that. I think, I think we need that kind of talk.

MR. RUSSERT: But one of the primary opponents you would have is Steny Hoyer of Maryland. Is his position on the war one of the reasons you would challenge him?

REP. MURTHA: Well, it was one of the reasons. And, and for a long time, he said withdrawal would be a disaster. Now, he’s come around substantially in, in that position. But you know, I, I feel very confident in, in running for this position. I think I can help lead the Democratic position in a lot of different issues. And the war has so many ramifications, and the public is focused. That’s the number one issue of all the polls that I’ve seen. So there’s a lot of reasons to run, but I think this is one of them.

MR. RUSSERT: Some Democrats have pointed out that you were just one of four Democrats to vote against lobbying reform, that your position on abortion is much different than the vast majority of the Democratic caucus. Are you out of sync with your caucus on some issues?

REP. MURTHA: I am. There’s no question about it. I’m, I’m much more conservative than, than most of the Democrats in my party. But I take a position I believe in, and I’ve always done that. When somebody comes to Congress, I tell them, “Look, you’ve got, you got to learn a subject, you’ve got to study a subject till you become an expert, and then you’ve got to keep your word.” And that’s what I try to do, and that’s the way I’ll try to lead.

MR. RUSSERT: Congressman John Murtha, we thank you for coming in and sharing your views. And happy Father’s Day.

REP. MURTHA: Nice to be. Thank you very much, Tim.

MR. RUSSERT: Coming next, prices at the gas pump, oil company profits. And our energy future. Can we be self-sufficient? The heads of Chevron, ConocoPhillips and Shell Oil are all here, coming up only on MEET THE PRESS.

MR. RUSSERT: The chief executives of the nation’s largest oil companies explain prices at the pump, alternative energy and our energy future, after this station break.

(Announcements)

MR. RUSSERT: And we are back.

Gentlemen, welcome all. Let me show you something from the latest NBC News/Wall Street Journal poll. How do you feel about oil companies? Positive, 11; negative, 71. Why is that?

MR. DAVID O’REILLY: Well, I can understand why people would view us negatively because gasoline prices have gone up. And I think, you know, that’s a shock to people. And one of the reasons I think I’m here is to try to explain the solutions to that problem. We’ve got to really deal with the energy supply situation. Demand has grown rapidly over the last few years; supply has not kept pace. And we’re investing to ROE, but it takes time, it takes investment, and it takes access to places to invest, to produce more oil and gas so that we can meet the market needs.

MR. RUSSERT: Why this terrible image?

MR. JOHN HOFMEISTER: Well, I wish people could come inside the company and see how employees are reacting to the high prices as well. They’re energized to go after more supply. The real issue is that demand has outstripped the supply and as a consequence of that, we’re putting more capital into the business than we have in our history. We have more projects running across this country and around the world than we’ve had in many, many years. Our employees are really getting excited about what they can do. And of course, they don’t get up every day to take money away from people; they get up every day to bring energy to people. And that’s what we keep trying to do every day.

MR. JAMES MULVA: I don’t think we really have done a good job as an industry over many decades explaining how we explore and develop energy. And as an industry, we just need to do a much better job.

MR. RUSSERT: But people know that their prices at the pump have gone up, and then they read headlines like this, “Oil giant Chevron Corp’s profits jumped to a record $4.1 billion in the fourth quarter, boosted mostly by the same high oil, natural gas and gasoline prices that have stretched household budgets and enraged politicians over the last year.

“Chevron’s quarterly earnings were up 20 percent compared with $3.4 billion a year earlier.”

And then this one. Equal opportunity, ConocoPhillips, “Thanks to soaring oil and gas prices, ConocoPhillips posted a 51 percent increase in fourth-quarter profits, providing a glimpse of what is expected to be an earnings-season bonanza for the entire industry.

And Shell Oil. “Royal Dutch Shell reported the highest-ever profits recorded by a company listed in the United Kingdom.”

Why are the oil companies making so much more money?

MR. HOFMEISTER: It really goes to the crude price. Crude price is up, the amount of money that is coming from that globally traded commodity called oil is, is at the highest level it’s been in a very long time. That money translates into high profits. If you look at some other portions of the business, for example our chemicals business, or our retail gasoline business, actually their profitability is really struggling. Even with these high prices of retail gasoline, that business struggles to make profit as, as, as they would like to.

Now, when you get the crude price, of course that’s paying for all the capital investment that we’re putting into the business. If we didn’t have this level of profitability, I don’t think we could get the supplies to where they need to get to.

MR. RUSSERT: But many consumers when they read you were on, e-mailed me with the same question: Why couldn’t the oil companies this summer say to the consumers, “Rather than have our profits go up 60 percent, we’ll just have our profits go up 30 percent, and we’ll lower the price of gas at the pump.”

MR. O’REILLY: Well, I think there’s a, there’s a perception that, that, that that this is an extremely profitable business long-term. And over the long-term cycle, it has not been profitable. In fact, we—our profits are in the mid-range for all of industries, if you look at the statistics, and this is BusinessWeek data.

The issue here is the scale of companies. We are enormous companies we have enormous capital investments, in order to provide more energy to the American people. For example, last year we made $14 billion dollars. That sounds like a lot of money. But the return on capital and return on sales were very modest. And this year we’re investing $15 billion dollars back in growing energy supplies. Here at home in the Gulf of Mexico we have one project alone that’s $3 ½ billion dollars to recover oil from the deep water of the Gulf of Mexico, bring it on shore, refine it and then ship it to the markets so that we can meet consumer needs. So the scale of our business is enormous. So the numbers seem big, but the investments are very big as well.

MR. RUSSERT: But you could make less profit and lower prices at the pump if you chose to.

MR. O’REILLY: Not, not in, not in an open market. Because if, if you reduce your price in an open market, demand goes up and you, you, you run the risk of running out of, of oil and gas. So I think the issue here is not, is not price issues. The solution here is to look at how we can increase supplies. This is the fundamental problem. Demand has grown, and we need to, we need to invest in growth of supplies to meet that demand. And that’s something we’re, we’re doing, but it takes time, it takes investment, and, and that product will be delivered to the market in time.

MR. RUSSERT: But you understand consumers. They see, as they drive down the street, different companies’ gas stations all with the same prices, and they’ll say, “This is gouging, this is collusion. These guys are taking advantage of a bad situation worldwide, and exploiting us.”

MR. MULVA: I don’t see it that way. Gasoline prices at the pump for the American consumer is about $3 dollars a gallon. In the western Europe, the Western world, gasoline prices are more like 5 to $7 dollars a gallon. We have an obligation as companies and as industry to add to supply. This is a global business. And it’s not only that we need to add to supply, but we need to reduce demand. In the United States alone we have about 2 percent of world oil reserves, 5 percent of the population, and yet we use about 25 percent of the world’s consumption of oil.

It’s a global business, it’s a global challenge, global problem. We need to add supply. It’s getting more difficult, more challenging. We have to go into more hostile, more difficult places, it costs us more. But we need to do a great deal more work on the demand side. We need to more efficiently utilize energy. So we need to add supply, but we also have to reduce demand.

MR. RUSSERT: But it’s also fair to say you’re in the business to make money.

MR. HOFMEISTER: Well, we are in the business to make money, but most of that money goes right back into the business. You know, we do owe our investors a dividend and a return on their investment, but beyond that it goes right back into the business. And I think Dave is right in mentioning the high cost of projects. We’re looking at projects that take somewhere between 10 and 15 years to develop, for which we’re getting no payback. In other words, we have a project in Sakhalin. We’ve been out there for nearly a decade. It’s still going to be several more years before we get money coming back to us from the crude and the oil and the gas that we produce there. In the meantime, we’ve got other projects that we’re investing in. So the profitability, while it looks like big numbers, it’s all being spent on future energy reserves.

MR. RUSSERT: Again, again, it’s this question of image. We have this poll question from Quinnipiac. How much do you blame oil companies for the high gas prices? A great deal 63, some 27. So combined, that’s 90. Not much, 5; not at all, 4. And it seems to be tied to headlines like this. This is Exxon—they’re not here today—but this is what greeted readers, certainly, of the Connecticut Post: “Exxon Mobil Corp. invested only $10 million last year on direct research on alternative energy while reaping a record $36 billion in profits. Meanwhile, it handed its retiring chief executive officer a nearly half-billion-dollar parachute. ... The New York Times reported that recently retired Exxon Mobil CEO Lee Raymond received a $400 million compensation package in his final year.”

And I read in—Lee Iacocca, the former head of Chrysler, offered this: “When I was at Chrysler, I took only a salary of $1 a year, though I made a lot of money on stock options. When I saw Lee Raymond of Exxon Mobil made $400 million in one year - that’s pretty absurd. How do you explain that?” What do you say...

MR. O’REILLY: One company’s decision on what to pay a chief executive isn’t going to solve the problem of energy supply, Tim. We’re here today to talk about the solutions. And, and this, this is not going to help resolve the issue of how we bring more supply to the market, which we’re investing in heavily to do that, and, and, work at promoting alternatives, which we’re also working on. Most of our companies are involved in this. I know we are. We’re promoting the use of biofuels, biodiesel. We are the largest renewables producer of any of the major oil companies at the moment, and we’re working to try to see what can be done to solve these problems. So I think we’ve got to work on the solutions to these problems. And, and, and I think it’s a very important time, because of the recognition now that we’re in a period of high gasoline prices, that the public look at these issues and encourage our lawmakers to address the real policy issues here that need to be addressed on the supply and the demand side.

MR. RUSSERT: I want to...

MR. O’REILLY: This is a time, this is a time to explore this.

MR. RUSSERT: I want to do that, but you would acknowledge that that payment by Exxon was a black eye for the oil industry with the consumers?

MR. O’REILLY: You know, it’s a black eye for one company, perhaps. But I would argue that most of, of this industry is struggling mightily with thousands and thousands of people working hard through hurricanes and through ups and downs to bring energy to the American people.

MR. RUSSERT: Let me talk about alternative energy and self-sufficiency in this country. This is an article about Brazil.

“[Brazil] expects to become energy self-sufficient this year, meeting its growing demand for fuel by increasing production from petroleum and ethanol. Already the use of ethanol, derived in Brazil from sugar cane, is so widespread that some gas stations have two sets of pumps, marked A for alcohol and G for gas...

“Today, less than three years after the technology was introduced, more than 70 percent of the automobiles sold in Brazil ... have flex fuel engines [that run on both ethanol and gasoline], which have entered the market generally without price increases.” If Brazil can do it, why can’t we?

MR. MULVA: Brazil is a unique situation. Reason Brazil is self-sufficient in energy is not so much because of ethanol. It’s because they have a very strong, growing, thriving oil production, both onshore and offshore Brazil. It’s been for several decades that Brazil uses sugar cane to make ethanol. It does have an impact in terms of the price of ethanol and also on the price of sugar. Just recently, Brazil reduced the amount of ethanol that they applied towards—for fuels for automobiles from 25 to 20 percent. The reason Brazil is self-sufficient—they make great strides in terms of ethanol—but it’s primarily be—due to the success of their oil production business onshore and offshore. It’s been like a ninefold increase in their oil production in Brazil. It far outstrips the increase of ethanol production.

MR. RUSSERT: As American citizens, when you wake up in the morning and you think to yourself, Venezuela, Saudi Arabia, Iraq, Iran, Nigeria—places where we get oil—those countries could, in effect, shut us off tomorrow if some awful thing happened, would it not be better to be self-sufficient, get off oil? Or, as George Bush said, “We’re addicted to oil and we have to get rid of the addiction.”

MR. HOFMEISTER: Tim, on Friday, I was in Dallas on the first city of a 50-city tour that Shell has begun to try to take the message of energy security through energy diversity to the American public. We think we need to do a better job of explaining what we’re up to. And what we can talk about in this country, in terms of energy security—I think energy independence is going too far—but in terms of energy security, we can deal with conventional oil and gas, we can move over to unconventional oil and gas—such as the oil sands in Canada or the oil shale in Colorado—we can then move into the LNG world, bringing a lot of liquified natural gas into this country. We can move into coal gasification, clean coal, turning coal into gas, gas into electric power. Much cleaner than most current power-generating stations. Then we can get into the alternatives, the alternatives of wind, solar, biofuels, hydrogen. There’s so much we can do in this country, and we’re actually working on all of that. And I look forward to taking that message forward.

MR. RUSSERT: Do you agree with the president that we’re addicted to oil?

MR. HOFMEISTER: I think we’re entirely oil-based in our economy the way we’re currently structured, and I think we will be for decades to come. And there’s plenty of oil out there to keep the economy moving. And we can go develop it if we had public policy to support the access we need to get more oil in the United States.

MR. RUSSERT: Are you not troubled by our dependence on foreign oil?

MR. O’REILLY: Well, I think every citizen should be troubled by it. And I think this is the big policy issue, we have actually become more dependent on foreign oil over the last 30 years. Now, at the same time, we have policies that restrict access to areas where we could explore for and produce oil and gas in this country. We can’t have our cake and eat it. We’ve got to look at opening up access to more oil and gas production in this country if we’re going to ever turn around this trend of going the other way or importing more.

MR. RUSSERT: Where would you try to find more oil in the United States?

MR. O’REILLY: There are two areas that remain relatively unexplored and that’s the outer continental shelf on, on the coast, which is a very sensitive issue for the American people, but I would argue that we need to look at this issue and we need to look at how we can safely and securely develop resources that are there, because today’s technology allows us to do it with much less of a foot print and in a much safer and environmentally sound way.

MR. RUSSERT: But politically, you have two Republican governors, Jeb Bush, the president’s brother in Florida, Arnold Schwarzenegger in California, both totally against that kind of exploration.

MR. O’REILLY: But, well, we’ve gone through a period where demand and supply have been in relatively good balance. We’re now in a situation where on a global basis we’re competing for our resources around the world. If we’re going to be more independent, we’re going to have to address the tough, tough question of should we allow more oil and gas development here in this country? If we don’t, then we’re headed in the wrong direction.

MR. MULVA: In terms of—I just said the world uses about 85 million barrels of oil a day and—just about 83 million, and there’s about 85 million worth production, so there’s a very tight excess supply, has an impact on the price of oil. For decades to come, we’re going to be based on fossil fuels providing energy.

MR. RUSSERT: Why does that have to be, though, when people read about what’s going on in the world with the dramatic amount of corn that’s available in this country, with the potential of nuclear power, if that were to be explored?

MR. MULVA: We need to develop every source of energy. It’s oil, gas, coal, nuclear, solar, alternatives, renewables. But on the other hand, we also need to face the facts—we can point our fingers politically to how this has happened over the last 20, 30, 40 years, but the facts are we’re going to be based on fossil fuels for a long period of time, even with all these other sources of energy. And so what we need to do as a country—historically, where the oil has come from has been very reliable suppliers of energy. So we’re part of the global community.

If we use one-fourth of the globe’s oil, we need as a consumer to work with the producing nations in a much more sophisticated, ongoing dialogue so as to make sure for energy security that it’s available medium- and long-term where it’s a much better dialogue between the producers and the consumers. We need to be doing this. And the second thing that’s mentioned just a moment ago with respect to demand, you know, we—you look almost 30 years ago that we made any real movement or progress on efficient use of transportation fuels, and when we did this 30 years ago we effectively over a five-year period of time reduced demand for oil for transportation fuels by two to three million barrels a day. It seems to me there’s been enough finger-pointing for a long period of time that we need to improve the efficiency of transportation fuels. And this goes a long way.

MR. RUSSERT: You mean miles per gallon?

MR. MULVA: Miles per gallon.

MR. RUSSERT: So with the American people lining up to buy hybrid cars, would each of your companies embark on an accelerated policy to have ethanol pumps in equal number, in equal visibility, to the gasoline pumps in all your stations?

MR. HOFMEISTER: Well, there’s, there’s two ways of looking at this, one is the ethanol blend, the ethanol blend of 5 to 10 percent ethanol is actually the solution we prefer when it comes to ethanol. If you get into the E85 product, you’re now getting into unknown territory. We’re starting a pilot project in Chicago with General Motors as a partner, VeraSun Energy as a partner, to test E85. One of the things that people don’t perhaps realize about E85 is you’re about 20 to 25 percent less miles per gallon using pure—this level of purity of ethanol, which people are going to have to pay perhaps even more than gasoline to get 25 percent less mileage. We need to test that as a commercial product and see if, if consumers are going to buy it.

Also on the biofuels side, one of the things that people also need to think about it is what generation of ethanol do they want to pursue? The corn-based or the sugar-based ethanol, which is called first-generation ethanol, is going right at the food costs. In other words, there’s only so much corn, and if oil companies are attacked for the price of gasoline—and we’ve seen ethanol go from $1.20 a gallon in 2005 to last week it was hitting $5 dollars a gallon on the spot market—if we start sucking up, as oil companies, all the ethanol, it’s going to hit the price of eggs, the price of bacon, the price of hamburger, the price of Doritos and Fritos, because there’s only so much corn to go around.

What we’re working on is second-generation ethanol, cellulosic ethanol. The president talked about it. And I think putting money into the second-generation ethanol takes the waste products, takes wood chips, takes other carbon fibers, and that is another form of biofuel that we should pursue.

MR. RUSSERT: In light of the national security interests of being so reliant on foreign oil, the environmental consequences and the alternative energies that are being developed, do you realistically ever see your company being totally free of oil in the next 10, 20, 30 years?

MR. O’REILLY: I don’t think in the next 20 or 30 years, Tim, but I think there is a transition opportunity here and that’s why we’re exploring these. We’re also running a trial program on E85 in California, for example.

California’s concerned about evaporative emissions because it’s more volatile.

So these things are being tested. We’re working on hydrogen. We’re working on many of the alternatives, a biodiesel plant that we’re investing in in the Houston area that will double U.S. biodiesel production. The problem with some of these alternatives is the scale is so small yet. You know, Brazil’s gasoline market is 3 percent of the size of the U.S. market. One ethanol plant makes in a year what a typical refinery will produce in gasoline in two days. So the scale is yet very, very small. So it’s going to take decades for us to make a transition. But this is the time to get started on evaluating these alternatives and developing them for the long term.

MR. O’REILLY: At Chevron, I don’t see it in 30 years, but we will, you know, 100 years from now, yes, we may well be oil-free. Yes.

MR. MULVA: Twenty to 30 years, 60 to 70 percent, at least, of energy provided in the world is going to come from fossil fuels. But I think it’s important that all of our companies, we evolve ourselves from just being an oil and gas company to an energy company.

I think it’s very important to point out something, though. It’s going to take a lot of technology and commitment to a long-term program of technology. It was just recently that China announced a 10-year program of about $170 billion dollars over the next 10 years to develop new and alternative and renewable fuels. We as a country ought to be working in joining countries like that in committing far more resources as a country to technology. Because that’s what we’re up against.

MR. RUSSERT: Has the president called you in and said, “I want to be free of foreign oil dependency. Let’s get busy”?

MR. HOFMEISTER: We have discussions with the White House quite frequently.

We haven’t had that kind of a specific discussion. And I frankly...

MR. RUSSERT: Have you met with the president?

MR. HOFMEISTER: No, I haven’t. Not on this subject. I think energy independence, Tim, is the wrong direction because the U.S. is not an island nation. We are interdependent on all of our global companies doing business all over the world, and I think the oil companies need to be interdependent as well. And I think that really is good for international relations. I think it’s good for the economy, actually, to have oil coming from wherever it can come from.

Now, we can do a lot more in this country, you know. The 102 billion barrels of known oil reserves and gas reserves that we don’t have access to in this country on federal land and outer continental shelf, we’d like to go produce that. And we know how to produce that. And I think we know how to produce it in environmentally sound ways.

MR. HOFMEISTER: Well, we’d like to keep working on it. I spend a lot more time on Capitol Hill than I do at the White House. And frankly, the Capitol Hill—when you talk to people individually, I think they get it. But we have what is a very difficult partisanship issue right now going through the Congress, and getting the bipartisan support we need is very challenging.

MR. RUSSERT: Realistically, should consumers expect to pay more for gasoline at the pump this summer and still more next summer and more every year?

MR. O’REILLY: Well, Tim, I hope, I hope not because I do understand why consumers are concerned. The thing that concerns all of us, I think, is that we’re heading into hurricane season again. And you will recall that last year a significant amount of the refining capacity and oil and gas capacity was shut down. Now, much of that has been recovered, thanks to lots of hard work by thousands and thousands of people, but they’re vulnerable. Many of them are living in temporary housing on the Gulf Coast, FEMA trailers and the like. And they’re much more subject to having to evacuate if hurricanes were to recur.

So absent hurricanes, I’m optimistic, but I think it’s a cautionary note, and I think that’s why we need to look at energy as a valuable input to our economy, something that helps our quality of life. But let’s treat it as a valuable commodity, not something to be used in a wasteful manner. This is an important issue. We need to change the way we think about this.

MR. RUSSERT: We thank you all for coming and joining us and sharing your views with us this morning and helping the American people to understand this issue. And I hope you’ll come back. ConocoPhillips, Chevron, Shell. Thank you all.

MR. RUSSERT: Start your day tomorrow on “Today,” and then the “NBC Nightly News” with Brian Williams.

That’s all for today. We’ll be back next week. If it’s Sunday, it’s MEET THE PRESS. Happy Father’s Day, everybody, particularly you, Big Russ. We’re watching the Nationals and the New York Yankees, and you’re going to be there.